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Comment by aaronwalker | Hacker News Reader

Ive heard conflicting viewpoints on the current crypto crash. Some say that this is different than the rest, and that crypto has already reached it’s all time max, whereas others say that this is just another pullback before an even larger bull run. With crypto, it is so hard to know what it’s actual value should be, since unlike a stock there are no earnings and thus you can’t look at the P/E ratio to determine its pricing. I’m curious to hear what you guys think—-and how you determine the value of crypto.

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Honestly, no way to tell at this point. Low interest rate and QE enabled all sorts of funny money shenanigans. Like startups raising billions with no real revenue and wildly unprofitable unit economics. Crypto benefited greatlyfrom this low interest regime too. If you had to borrow money at 8% interest, you wouldn't be as callous with it.

Crypto has only existed in this funny money monetary environment. Good chance it all collapses if interest rates are too high by the time of the next BTC halvening (iirc around mid 2024) and there aren't enough bids to perpetuate the "next cycle will be bigger than the last" pattern.

But at the same time, its also true that the awful central bank management that prompted the creation of BTC is also at its peak awfulness right now.

So really, wait and watch.

When I had crypto assets, I came upon this article about “Greater fool theory”

https://en.wikipedia.org/wiki/Greater_fool_theory

It made me sell all my crypto (luckily at a profit), and I have not looked back.

Yup. You nailed it. It's a fad which which most buyers and sellers use as a means to engage in gambling.

Agreed. My friend said to me, "do you believe in cryptocurrency?" I thought to myself no, and sold it. I can see now my motivation was greed and fomo. Neither of which are values I live my life by.

So you basically don't invest in anything because that theory can be applied to any asset.

Most assets are, at least in theory, backed by something that can turn a true profit in an efficient market. Anything that's based on capital-intensive resource extraction can pay a dividend on the profit from that capital. Anything that's based on real estate will go up in price as population increases. Anything that's manufactured or based on IP can pay a dividend based on the value delta between inputs and outputs.

In general, anything that turns a raw material of some sort into a more refined product (be it iron ore into steel, steel into machines, or electrons into advertisements) is adding economic value into the system. By doing that work, the total net wealth of humanity increases. The economy is positive-sum, and so investing in anything that's correlated with the economy as a whole should be worthwhile.

Bitcoin doesn't work that way. Trading Bitcoin isn't adding to the total net worth of humanity. Mining Bitcoin arguably could be, because the ability to make transactions has some value, but the practical value of those transactions is less than the value of the electricity, computer hardware, and pollution that go into making them. Speculating on Bitcoin does nothing productive; it's zero sum. Net-zero systems are nearly indistinguishable from gambling unless you have insider information.

There are many different lenses in which one could look at Bitcoin and say that it’s making humanity more productive.

One that comes to mind especially for Bitcoin is that it “could” act as a global store of value, independent of any one geopolitical power. Many countries lack stable and non-corrupt currencies, and many people in those countries cannot trust putting large sums of money in their economy, for fear that they will be taken away from them. If BTC stabilizes in value sufficiently, people in those countries could use it as a store of value—like gold, but easier to obtain. Id argue that the idea of having a digital store of value does increase the productivity of the world, because people don’t have to rely on inefficiently hoarding gold, or paying fees for buying gold in the stock market.

Like I said, mining Bitcoin can be argued to be adding value. Pure speculation can't - except via the second-order effect of encouraging more mining - so we shouldn't be surprised when speculators lose their gamble.

Like a house?

Coinbase recently offered a bond that paid 3.3750% interest. As long as they don't default on their payments, that will have objective returns outside of any market forces and greater fools. The price you can sell it for fluctuates but is immaterial if you hold it to maturity.

Of course, it's very unlikely that anybody in this thread bought them because in reality we are looking for gains correlated to hype/market performance/inflation/interest.

What is the difference between something explained by the "Greater Fool Theory", and any of the numerous things that simply increase in value over time due to increased demand and/or rising scarcity?

It seems to me the only difference is whether the speaker is predisposed to not like the thing in question.

To qualify for greater fool something must a) overvalued vs its utility and b) purchased on the sole assumption that it can later be resold at a higher value.

This leaves you with a surprisingly small amount of assets. Collectibles probably.

I think the epitome of greater fool is probably NFTs. Unlike a real piece of art you don't actually own anything unless additional value is conferred to you by owning it from the issuing entity, like say legal copyright over the referenced piece in question (if its art).

> Unlike a real piece of art you don’t actually own anything

What is it that you actually own when you buy a physical art piece? Is it the actual canvas and the paint on top? If so then that is definitely not worth hundreds of thousands of dollars on its own. Or, more likely, is it the fact that you own the original, and that the artists could never make an exact replica, unlike with NFTs? Even though you can make an exact replica with NFTs, everybody agrees on the original, and therefore the exact replica has no value. With art you could make a near perfect replica, but everybody would still agree upon the original, and therefore the original is the one with real value. IMO NFTs and physical art are still very similar.

That would be true if the actual NFTs stored the art in question, or even a cryptographic fingerprint of it. Generally speaking most NFTs are just a URL that usually points to some random webserver on some random domain, both of which could entirely cease to exist at any time or be taken over by another party.

i.e your dumb ape picture could now suddenly become furry porn.

Real art (assuming proper steps to preserve and protect it) will remain as it was while it's in your care. You -own- it, you can take it where you please, store it how you please, etc.

NFTs aren't like real-art at all, they are at best analogous to in-game collectibles - entirely subject to ToS but even those are less predatory and ponzi-like than NFTs.

If you're referring to gold, etc., then I'd agree. Even despite their real-world utility, I don't buy them.

If you're referring to stocks and bonds, those can have objective value in the form of dividends and coupons.

It’s fairly obvious that a compelling regulatory framework and standardization around security tokens will emerge in some jurisdiction. Custodians of tangible assets will offer listing services. Standardization, regulation, and features like fractionalization and composability will allow organized markets to form with more participants, better risk management, and increased liquidity for things like private equity and alternative investments. Price will follow underlying asset plus some risk premium minus some liquidity premium. Networks that secure these assets will have token prices that follow transaction fees and the value capturable by choosing transaction ordering.

As I learned from a quotation which is attributed to Mark Cuban, so-called “cyptocurrencies” are collectibles like baseball cards, rare postage stamps, and French impressionist paintings. Fundamentally they're all fads. None of them have any significant inherent value. Typically two types of people purchase them: either avid collectors or speculators.

Don't gamble. It's not a productive use of your time. It's also a vice. Spend your time doing something that is valuable and productive. Don't fritter it away or one day you will probably regret it.

And now some of them have entered to fractional ownership... Meaning some people are there for speculation not even some type of ownership of collection... Or at least I think very few would think owning part of card stored somewhere is collecting... Really asking question does this make sense at all.

I think you're confusing a Crypto with NFTs. One is virtual money, the other is virtual certificates.

I have a collection of broken pens on my desk... in theory I could also use them as units of currencies, I just have to find a sucker^W person willing to accept them as such...

> I’m curious to hear what you guys think—-and how you determine the value of crypto.

The value at any point in time is determined on the exchanges. I think a better question is what changes the value, creates the volatility, and so forth.

Buy and sell pressure.

No, the clearing price is determined by the exchanges.

The value is the net benefit (including future benefit) that it provides.

McDonalds creates value by providing convenient and consistent hamburgers, and entry-level jobs.

Bitcoin, I've been told, creates value by allowing easy transfer of funds. Thus the value of Bitcoin should be based on how Bitcoin transaction costs and externalities (lack of regulation is both a plus and a minus) stack up against other money transfer systems.

> With crypto, it is so hard to know what it’s actual value should be, since unlike a stock there are no earnings

Your second part there gives a very good hint to your problem in the first part. Of course, in some sense there is some value in facilitating child porn and other illegal activities and some value in burning fossil fuels for mining (the value may be positive or negative). I am still pretty confident that if you just round "actual value" to zero - and use the possible error to keep you away from shorting the market - that is in the long run the valuation that gives you the best quality of life.

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